Concerns over contract bundling cast shadow over 2013 small business successes

For the first time in seven years, government leaders expect agencies to meet the goal of awarding at least 23 percent of all prime contracts to small businesses.

While the final fiscal 2013 data is not yet complete, Emily Murphy, a House Small Business Committee staff member, and others say all signs point to the fact that despite the government spending less overall money on acquisition last year, agencies met the statutory goal.

The government as a whole hasn’t awarded 23 percent of all prime contracts to small firms since 2007.

But despite the expected success, some in the contracting community see warning signs that signal bigger problems for small firms than whether or not agencies meet statutory contracting goals.

Reduced spending means fewer opportunities for vendors, and with the shutdown, sequestration, hiring freezes and cuts to training funds, agencies are trying to address shortfalls in experienced acquisition workers.

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Small firms and other observers say they are seeing a rise in contract bundling and consolidations. Additionally, agencies are not meeting the statutory requirements to justify taking these actions, which adds to the situation.

Not on the radar, yet

Rob Burton, a procurement attorney with Venable in Washington and a former deputy administrator at the Office of Federal Procurement Policy, said the issue of bundling and consolidation and the fact that agencies consistently are ignoring the requirements to justify their decisions isn’t getting a lot of attention in the small business community, but could have a huge impact on small firms over the long run.

Murphy said contract bundling and consolidation are among House Small Business Committee Chairman Sam Graves’ (R-Mo.) top concerns.

“The numbers [of bundled or consolidated contracts] in the database are wrong, and that’s bad from a public policy standpoint. But it’s even worse when you consider it means that neither the justification, the mitigation nor the data capture is taking place when it comes to bundling or consolidation,” Murphy said during a panel discussion Thursday in Washington at the ACT-IAC Small Business Conference. “While you or I may catch a contract that’s $10 billion, no one is looking at the $75 million contract.”

Murphy said that’s why Graves introduced the Contracting Data and Bundling Act of 2014 in February.

The legislation would “require the Small Business Administration to work with other agencies to create and implement a data quality improvement plan to promote greater accuracy, transparency and accountability in the reporting of contract bundling and consolidation. It then requires the Government Accountability Office to assess the agencies’ success and offer suggestions for further improvement.”

“I’m fairly confident that it will be included in this year’s Defense authorization, which gives it a good chance of making it into law,” she said.

Murphy added the new provision would be a step, but it wouldn’t address the bigger concerns about strategic sourcing and bundling. She said the administration’s goal of maintaining a certain percentage of dollars going to small firms doesn’t take into account the long-term impact on the industrial base that these efforts are having on the companies in the private sector.

Ken Dodds, the Small Business Administration’s director of policy, planning and liaison, said bundling has been a huge issue since the late 1990s.

“Let’s be clear: agencies can bundle, and they can consolidate. They just have to justify it. There are thresholds they have to do. They have to analyze the data. They have to mitigate. There are things they have to do,” he said. “Agencies often get into trouble when they try to ignore it and do not do the work they have to do. If agencies do it, they can do it.”

Dodds said the problem there is little to no follow up with the agency that decided to bundle the requirements or contracts to see if they met their justification in terms of savings or efficiencies.

This issue came to light just recently when SBA ruled that GSA didn’t justify its rationale for consolidating requirements under the office supplies 3 strategic sourcing solicitation.

The fact that agencies are not checking the box and following the rules because they don’t want to do the justification is why Graves is pushing his legislation.

New approach to teaming

While some agencies are moving toward bundling or consolidations, vendors are looking for innovative ways to bid on these larger contracts.

One way is through the creation of contractor teaming arrangements (CTAs).

This is the concept where two or more GSA schedule contractors work together to meet ordering activity’s needs, according to a recently posted set of FAQs by GSA.

The idea is the prime and subcontractor operate at the same level, unlike a joint venture where there is a hierarchy and even an ownership stake among the partners.

“We are still working through issues on that,” said Kay Ely, GSA’s director of Schedule 70 in the Integrated Technology Solutions Office in the Federal Acquisition Service. “Probably when I’m out addressing audiences, that’s one of the things I hear about the most. However, it’s extremely critical to have that avenue, so there are some details of that we are working through. One of my biggest challenges is consistency. Sometimes you will get a different answer depending on who you talk to. So I’m trying to work through that. I’m working with the acquisition policy folks.”

CTAs aren’t well understood by vendors and agencies alike, meaning mistakes or missteps are highly possible. That’s why Ely said the goal is to make sure CTAs are aligned with policy and based on standard templates that all contracting officers and vendors can follow.

Another way agencies and vendors are trying to address concerns over bundling and consolidation is through the new Chief Acquisition Officer’s dialogue launched Wednesday by OFPP and the CAO Council.

The dialogue asks interested parties, vendors and the general public for ideas and help to solve three specific procurement issues:

How to increase small and disadvantaged business participation in government contracting?

What changes to rules or practices are needed to increase innovation across government?

What compliance requirements are burdensome and should be changed?

Another issue related to bundling and consolidation is the way agencies and vendors measure their success against subcontracting goals.

Agency implementation and the Federal Acquisition Regulation interpretation of the language in the Small Business Act for subcontracting goals vary too much, according to experts.

The law stated goals should be based on the total value the prime contractor plans to subcontract out. But some agencies are interpreting the FAR to say goals are based on the total aggregate value of the contract.

For example, if an agency awards a contract for $100 million and the prime plans to subcontract out $20 million, are the subcontracting goals based on the $100 million or $20 million? It’s a big difference for small firms.

There is a growing recognition that this is a major problem.

Subcontracting discussions on the Hill

The Department of Health and Human Services is developing a change to the HHS FAR supplement to deal with the confusion.

The Defense Department also has begun an attempt to clarify expectations.

“Office of Secretary of Defense Andre Gudger’s office is working on a subcontracting working group, so we will bring that up. I agree it needs to be changed and be consistent with the small business participation plan at the source selection level, because that is based on the total contract value,” said Sandra Broadnax, the director of small business programs for the National Geospatial-Intelligence Agency. “I got it noted. I’ve sent it, and we will work it.”

Mathew Blum, the associate administrator at OFPP, said the inconsistent application of subcontracting metrics is not on its radar, but it is aware of the challenges.

Additionally, GSA went to Capitol Hill Thursday to discuss subcontracting and the fact that there are two different systems — the Electronic Subcontracting Reporting System (ESRS) and the Federal Subcontracting Reporting System (FSRS) — under the USASpending.gov portal.

Sources say the meeting centered on changes GSA is making to both of these two systems in an effort to standardize agency reporting.

Currently, ESRS is focused on percentage of subcontracts, but not dollars, while FSRS focuses on all subcontracts greater than $25,000. The Small Business Act wants agencies to report percentages.

A Hill staff member said the goal is to get agencies to focus on both percentages and dollar figures in the end and put all the data in a system that is standard and easy to access.

The staff member said GSA plans to update ESRS as part of its System for Award Management revamp and take the current system offline by first quarter of 2016.